In a long due correction, Pakistan Stock Exchange (PSX) took a breather during the week ended 23rd December 2016. The benchmark index closed flat at 46,634 levels. Key event for the week was completion of bidding process for the sale of 40% shares of PSX, where Chinese‐led consortium emerged as the highest bidder with Rs28/share. Volumes dipped during the week with average daily turnover at 336.6 million shares, down by 5.8%WoW.
Major news flows during the week were: 1) Prime Minister Nawaz Sharif brought five key regulatory bodies including OGRA and NEPRA under the administrative control of relevant divisions/ministries, 2) Current Account Deficit for November’16 rising to a hefty US$839 million as compared to US$381 million in October’16, taking 5MFY17 deficit to US$2.6 billion, up 91%YoY, 3) GoP raised Rs149.9 billion in MTB auction where cut off yields for 3 and 6 month moved up, 4) PSMC confirmed plans to launch the standard model of Suzuki Celerio in March’17 that will replace it Cultus model, 5) Competition Appellate Tribunal has dismissed an appeal filed by HASCOL to prevent PSO from acquiring SHEL’s shares in Pakistan Refinery and 6) NEPRA granted power generation license to Maple Leaf Power Limited, clearing the way for setting up an imported coal‐fired plant of 40MW at an estimated cost of Rs5.5 billion. Market leaders for the week were: HMB, EPCL, AICL, PSMC and ABL. Laggards during the week were: MEBL, LOTCHEM, SSGC, HASCOL and ASTL. Foreign participation continued its negative trend with US$45.5 million outflows compared to US$46.7 million in the last week.
The market is likely to largely continue its positive trend over the near term, however room for volatility in the next week remains where risks could emerge in the form of: 1) any swing international oil price on potential concerns on rising US inventories and 2) and political developments gaining prominence. Possible announcement of anticipated exports incentive policy in the near term remains a key trigger for price performance in the textile sector.
Shifting of policy stances (gas price curtailment, privatizations), incidence of higher taxation (super tax continuation, real‐estate) and sector specific packages (auto policy, incentives for textile exports) add up to a 'hit‐or‐miss' policy environment for domestic industry. Sectors bearing the brunt of policy actions include: 1) Textiles through zero‐status scheme granted to all export‐oriented sectors and accompanying DLTL and ERF incentives, 2) Autos from the introduction of AIDP‐II and accompanying incentives shifting long term competitive dynamics in the sector, 3) Fertilizer on support from GST reduction, cash subsidies and reduced feedstock prices in April’16, and 4) Cements, as they faced higher FED, difficulty in approval for coal expansions and blowback from real estate taxes. For CY17, analysts expect regulation pertaining to export competitiveness to continue, while expansion projects with FDI elements (foreign ownership) to continue remaining in favor. Moreover, as election year approaches, targeted subsidies for agri‐linked sectors, consumer cyclical (Autos, Consumer Goods) from widely accepted populist policies, are expected to gain steam.
Balance of payment metrics in November'16 has remained unimpressive. While exports for the month marked slight recovery with 6.2% sequential rise, they remain flat on YoY basis which coupled with 6.0%MoM/10.8%YoY rise in imports has pushed the trade deficit 10.5% MoM/14.3%YoY higher. While remittances improved 3.3%YoY for the month to US$1.61 billion, dip in flows from GCC region at 0.8%YoY still remains a concern. Foreign investment inflows netted at US$87.2 million in November'16, down 41%YoY, where FDI stood at US$143.7 million (down 37% YoY) as inflows from China have been slow this fiscal year (China's share in 5MFY17 down to 34% from 45% as compared during the same period last year). Going forward, Balance of Payment trends are expected to worsen; with little room for fast paced recovery in exports. Analysts see FY17 trade deficit expanding by 14%YoY which coupled with flattish remittance flows should keep the deficit high.